The Trend International Information Agency presents an overview of the main events in the financial sector of Azerbaijan for 2024, Day.Az reports.
Banking sector
One of the important events last year was the approval of the Green Taxonomy. The Green Taxonomy includes a classification system for defining the types of green activities, subtypes and criteria for their technical classification by industry sector. The Green Taxonomy, intended primarily for use by financial institutions, can be used by the private sector to ensure compliance business activities to the criteria and principles established in the taxonomy, developing green and sustainable transition strategies, making relevant information public, engaging green investments and other similar areas.
The “green taxonomy” will serve to create a sustainable financial ecosystem in the country, direct internal and external resources to environmentally friendly and sustainable projects, manage risks associated with climate change, seize opportunities associated with the transition to a low-carbon economy, and support the activities of enterprises, specializing in the export of goods and services. Thus, it will make an important contribution to the adaptation of the country’s economy to the imperatives of sustainable development, as well as to strengthening the role of the financial sector in the transition to a sustainable economy. The “green” taxonomy was developed by an expert group on sustainable finance, created at the initiative of the Central Bank and with the participation of relevant government agencies with the support of World Bank experts. During the preparation process, along with advanced international experience, the peculiarities of the country’s economy were taken into account.
Another important point was the approval of the “Financial Sector Development Strategy for 2024-2026”.
The strategy includes priorities such as developing the insurance, capital markets and payments sector in the country, as well as strengthening the stability of the banking sector.
It reflects strategic goals such as expanding financial inclusion, increasing financial inclusion and diversifying financial instruments, increasing efficiency in the sector, introducing corporate governance, and enhancing transparency and stability. The strategy document defines the likely market potential of each sector, relevant Central Bank quality requirements and control mechanisms, and other aspects.
Last spring, Azerbaijan and Albania signed an agreement on economic cooperation. The document provides for encouraging cooperation in priority areas, including trade, investment, energy, transport, infrastructure, agriculture, tourism, the environment and the humanitarian sphere.
The central banks of Azerbaijan and Uzbekistan signed a memorandum of understanding. The memorandum will serve to expand partnerships, exchange experience and information, as well as organize bilateral visits.
In addition, the Central Bank of Azerbaijan and the Astana International Financial Center signed a Memorandum of Understanding. The Memorandum will help create a legal framework for cooperation between institutions, strengthening cooperative relationships while promoting the secure functioning of financial markets and enhancing the exchange of information. It is noted that within the framework of the Memorandum of Understanding it is planned to exchange experience and information between institutions, as well as organize mutual visits.
Last year, Azerbaijani banks and the Asian Development Bank (ADB) signed a number of agreements. Thus, OJSC “Rabitabank” and the ADB signed an agreement on cooperation on the “Guarantee System of Trade Finance”. The collaboration with ADB is aimed at strengthening Rabitabank’s trade finance operations and offering improved services to its clients. OJSC TuranBank and ADB signed an agreement on financing international trade operations. As part of the new agreement, the ADB approved the trade finance guarantee limit, including TuranBank OJSC in the TSCFP Trade and Supply Chain Finance Program. It should be noted that this agreement will expand import and export operations in the country and support clients’ trade operations.
In addition, AccessBank attracted a loan of five million dollars from the Swiss company responsAbility Investment AG. It is noted that AccessBank entered into a loan agreement with two funds managed by responsAbility for amounts of 3 million and 2 million US dollars, respectively, for a period of 3 years. The funds raised will be used for initiatives that promote the development of entrepreneurship in Azerbaijan, including the financing of microloans, which is one of the priority areas of the bank’s activities.
It was also noted that TuranBank opened a correspondent account in US dollars with Habib American Bank. Thus, as part of the cooperation, TuranBank will open a correspondent account in US dollars with HAB Bank, which is considered one of the leading banks in the field of international payments and settlements in the United States of America (USA), and will provide its clients with more convenient and faster transactions with foreign currency.
In addition, Rabitabank OJSC and the International Islamic Trade and Finance Corporation (ITFC) signed an agreement for the development of the private sector in the amount of $15 million. It is noted that the agreement provides for the creation of commercial financing mechanisms to meet the diverse needs of private sector clients with the support of small and medium-sized businesses in accordance with Islamic financial principles.
Moreover, AccessBank and the European Bank for Reconstruction and Development signed an agreement on joint lending to companies in Azerbaijan (Risk Sharing Facility).
In an exclusive interview with Trend, Chairman of the Board of AccessBank Davit Tsiklauri said that this agreement opens up the possibility for the bank to jointly lend to companies in Azerbaijan.
“Unlike the usual scheme, where the EBRD provides funds and we issue them in the form of loans, here we are talking about a joint provision of a loan to a specific Azerbaijani company. What does this give us? First of all, it allows us to lend to larger projects. Thanks to cooperation with the EBRD we can pool our resources and provide a loan that will significantly exceed the possible limits if we worked alone,” he said.
In an exclusive interview with Trend, ITFC Chief Operating Officer Nazim Nurdali said that ITFC plans to cooperate with about 10 banks and financial institutions in Azerbaijan to create financing lines.
“We are currently implementing a similar model in Tajikistan, Kyrgyzstan and Azerbaijan. Our partnership in Uzbekistan began in 2018 with one bank and has since expanded to 12. We aim to repeat this success in Azerbaijan, planning cooperation with approximately 10 banks and financial institutions to establish financing lines. Our main focus in Azerbaijan will be on providing financing through local banks as We intend to provide financing lines of between US$20 million and US$30 million for import-export activities, which will then be distributed by these banks to their core SME clients. This approach is consistent with Azerbaijan’s dynamic economy, where the private sector plays a vital role. “, he said.
Last year, ADB carried out a new placement of bonds in the national currency of Azerbaijan and attracted 19.5 million manats (about 11.5 million US dollars). The issue is structured as a three-year currency-linked bond, with a sinking fund that reflects the amortization conditions of the underlying loan aimed at financing the development of women’s entrepreneurship and agro-industrial complex in Azerbaijan.
Speaking about the discount rate, it is worth noting that the board of the Central Bank of Azerbaijan (CBA) decided in December 2023 to lower the discount rate from 8.5 percent to eight percent. The upper limit of the interest rate corridor was reduced from 9.5 percent to nine percent, and the lower limit – from seven to 6.5 percent. At the first meeting of the CBA board last year, it was decided to lower the discount rate by 0.25 percentage points – from eight to 7.75 percent. The upper limit of the interest rate corridor was reduced to 8.75 percent, and the lower limit to 6.25 percent.
At the last meeting last year, the Central Bank of Azerbaijan decided to leave the discount rate unchanged at 7.25 percent, the upper and lower limits of the interest rate corridor also remained unchanged at 8.25 percent and 6.25 percent, respectively.
Insurance sector
Last year, the Azerbaijan Insurers Association and the Union of Insurance and Reinsurance Companies of Northern Cyprus signed a memorandum.
It is noted that the memorandum defines areas of interaction, including the exchange of personnel, experience and information, the development of new joint insurance products, as well as the establishment of reinsurance ties between the two countries.
In addition, Asoba General Director Vladimir Korobushkin, on the sidelines of the Azerbaijan International Insurance Forum 2024 (AIIF-2024), exclusively told Trend that the company intends to enter the Azerbaijani market.
“We are striving to find a partner who could represent our interests and provide assistance in resolving emerging issues on the territory of Azerbaijan. In response, we are ready to provide similar support to the clients of this partner in Belarus, helping free of charge in resolving insurance claims, including evacuation if necessary. Logistics flows from Belarus are now increasingly sent to China, Turkey and Azerbaijan. Therefore, it is especially important for us to find a reliable partner for mutually beneficial cooperation, which determined our participation in this. forum,” he said.
Last year, the liberated territories of Azerbaijan were given the opportunity to use the international insurance service “Green Card”.
It should be noted that the Azerbaijani manat remained stable against the US dollar last year.
Let us add that according to the report of the Asian Development Bank (ADB), in Azerbaijan it is expected that the national currency will remain pegged to the dollar at least until 2026.
The report emphasizes that this will be due to a significant reduction in pressure on the manat.
In turn, analysts from the Dutch ING also predict that Azerbaijan will maintain the de facto peg of the manat to the US dollar at the level of 1.7 manat to one dollar at least until 2026.
Analysts at the international rating agency S&P Global Ratings also expect this rate to remain at least until 2026.